Social commerce firms in the red

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Social commerce firms in the red

Korea’s leading social commerce companies including We Make Price and Ticket Monster are in poor financial shape, raising concerns about whether these companies are financially capable of staying afloat and making payments to their suppliers, analysts said.

According to the latest regulatory filings available, outstanding debts of We Make Price were 223.5 billion won ($201.7 billion) and Ticket Monster’s were 188.6 billion won as of the end of 2014. Money owed to creditors including suppliers was 211.5 billion won for We Make Price and 8.7 billion won for Ticket Monster.

We Make Price’s total assets stood at 141.8 billion and Ticket Monster’s at 101.4 billion won. We Make Price’s net asset was negative 81.7 billion won, and Ticket Monster’s 87.2 billion won.

Market leader Coupang was in slightly better shape, with outstanding debt amounting to 319.1 billion won as of the end of 2014, 227.5 billion won of which was owed to creditors.

Coupang’s total assets amounted to 342.8 billion won, barely enough to cover its outstanding debts, but the company was given a $1 billion investment earlier this year by Softbank.

These social commerce companies are reporting losses year after year, heightening worries about their viability.

Coupang reported 121.5 billion won in operating losses for the 2014 fiscal year, after reporting 4.2 billion won losses the previous year. We Make Price posted operational losses of 29 billion won in the 2014 fiscal year and 36.1 billion won in 2013. Ticket Monster reported operating losses of 24.6 billion won last year, and 70.8 billion won the year before.

“These e-commerce companies are companies in name only. They are not making profits and they are submerged in debts,” said a brokerage analyst who covers the retail sector.

“They are basically subsisting on investments. Personally, with the exception of maybe one company, I do not think the rest will manage to stay afloat.”

The real problem is the potential repercussion of their insolvencies on countless small-and-medium sized companies that supply products for the firms. Social commerce companies tend to make payments to their suppliers a couple of months after sales of the products.

“We are basically start-ups. Yes, we are generating losses, but we will continue to invest in our logistics and in our people. We are confident that these investments will pay off,” said a Coupang official, adding it’s a norm for start-ups to see years of losses.

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